1st Draft
Pre - Feasibility Study
MUSHROOM PRODUCTION AND
PROCESSING
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
1
Contents
1. DISCLAIMER ...................................................................................................................................... 1
2. PURPOSE OF THE DOCUMENT ...................................................................................................... 2
3. INTRODUCTION TO SCHEME ......................................................................................................... 2
5. EXECUTIVE SUMMARY .................................................................................................................. 2
6. BRIEF DESCRIPTION OF PROJECT ................................................................................................ 3
7. CRITICAL FACTORS ......................................................................................................................... 4
8. POTENTIAL TARGET MARKET ...................................................................................................... 4
9. PRODUCTION PROCESS FLOW ...................................................................................................... 4
10. PROJECT COST SUMMARY ........................................................................................................... 5
11.1: Project Economics ........................................................................................................................... 5
11.2: Project Financing ............................................................................................................................. 6
11.3: Project Cost ...................................................................................................................................... 6
11.4: Space Requirement .......................................................................................................................... 6
11.5: Machinery and Equipment ............................................................................................................... 6
11.6: Raw Material Requirements ............................................................................................................ 7
11.7: Revenue Generation ......................................................................................................................... 7
11.8: Human Resource Requirement ........................................................................................................ 8
13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS ........................................................... 8
14. ANNEXURES .................................................................................................................................... 9
15: KEY ASSUMPTIONS ..................................................................................................................... 11
i
List of Table
Table 1. Project Economics ……………………………………………………………...............5
Table 2. Project Financing……………………………………………………………………….6
Table 3. Capital Investment for the Project……………………………………………………....6
Table 4. Land Requirement………………………………………………………………………6
Table 5. List of machinery and equipment……………………………………………………….7
Table 6. Cost of Raw Material……………………………………………………………………7
Table 7. Revenue of the Project………………………………………………………...................7
Table 8. Human Resource Requirement…………………………………………………………..8
List of Annexure
Annexure 1. Income statement…………………………………………………………………11
Annexure 2. Cash flow statement……………………………………………………………....12
ii
1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general
idea and information on the subject. Although, the material included in this document is
based on data / information generated from experiments and field testing by a team of
relevant scientists; however, it is based upon certain assumptions which may differ from
case to case. The contained information may vary due to any change in any of the
concerned factors, and the actual results may differ accordingly from the presented
information. The PARC and its employees do not assume any liability for any financial
or other loss resulting from this memorandum in consequence of undertaking this activity.
The prospective user of this memorandum is encouraged to contact qualified
consultant/technical expert, especially designated focal person(s) of this enterprise for
reaching to an informed decision.
1
2. PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs
in project identification for investment. The project pre-feasibility may form the basis of
an important investment decision and in order to serve this objective, the document
covers various aspects of project concept development, start-up, and production,
marketing, finance and business management. The document also provides sectoral
information, brief on government policies and international scenario, which have some
bearing on the project itself. The purpose of this document is to facilitate potential
investors in Mushroom Production and Processing by providing them a holistic as well
as a micro view of business with the hope that such information as provided herein will
help the potential investors in crucial investment decisions. The need to come up with
pre-feasibility reports for undocumented or minimally documented sectors attains greater
imminence as the research that precedes such reports reveal certain thumbs of rules; best
practices developed by existing enterprises by trial and error, and certain industrial norms
that become a guiding source regarding various aspects of business set-up and it’s
successful management. Mushroom production could give employee and business
investment opportunities for youth and mid-age people in rural area. Mushroom
production can be managed by people who have lower level education in rural area. They
may need short time training on mushroom production.
3. INTRODUCTION TO SCHEME
Prime Minister’s Youth Business Loan Program, for young entrepreneurs, with an
allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized
financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries,
through designated financial institutions, initially through National Bank of Pakistan
(NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0
million with tenure up to 8 years inclusive of 1 year grace period, and a debt: equity of 90:
10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh,
Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and
Federally Administered Tribal Areas (FATA).
4. EXECUTIVE SUMMERY
Mushrooms are gradually becoming popular as they are rich in protein, minerals and
vitamins and very low n fat and sugar. Fresh mushrooms have very limited life and hence
they need to be consumed within few hours. But processing and canning increases their
shelf life to few months.
It is also known to have medicinal values and certain varieties of mushrooms can inhibit
growth of cancerous tumor. The productivity of mushroom is higher than any crop. Food,
nutritional and medicinal values apart, mushroom growing can be efficient means of
waste disposal (agricultural, industrial and forest wastes), since it can use the wastes as
medium of growth. Hence, it could be considered as eco-friendly. In Pakistan only three
types, namely, button, oyster and straw mushrooms are commercially cultivated. Further,
mushroom growing is highly labor intensive and requirement of land is comparatively
low.
2
Market for mushrooms is growing rapidly in Pakistan because of their nice
aroma, nutritious values, subtle flavor and special taste. Many exotic food preparations
like soup, vegetables, pickles etc. are made from them. They are also used for garnishing,
to prepare many varieties of gravy and for stuffing several food preparations. But they are
still considered as up-market product and their consumption is limited to urban and semi
urban areas. Fresh mushrooms have very limited shelf life but processed and canned
mushrooms have fairly long shelf life and can be sold even at far off places, Star hotels
and exclusive restaurants. The product can be sold even through departmental stores,
super markets etc. In Pakistan the biggest mushroom supplier markets are Islamabad,
Lahore and Karachi. Total cost estimate is Rs.1.9 million, with fixed investment of Rs.
0.6 million and working capital amounting to Rs. 0.9 million. Given the cost
assumptions, Net Present value (NPV) Rs.1, 1756,876, Internal Rate of Return (IRR)
66%, Benefit Cost Ratio (BCR) 2.4 and payback period are 1.5 years.
5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT
Following key parameters must be addressed as per pre-feasibility study:
• Techniques: mushroom is indoor cultivated crop because it has no chlorophyll and
there is no photosynthesis. It is grown on agricultural and industrial wastes with the little
amendments of gypsum and limes.
• Location: The business can be initiated in cold areas especially northern hilly areas of
Pakistan like Kashmir Gilgit Swat Kaghan and Muree/ galiyat. Temperature range should
be between 15-25 oC.
• Product: mushroom consumption is increasing in Pakistan due to changing food habits
and special preferences for high quality protein. Mushrooms are growing rapidly in
Pakistan because of their nice aroma, nutritious values, subtle flavour and special taste.
Many exotic food preparations like soup, vegetables, pickles etc. are made from them.
They are also used for garnishing, to prepare many varieties of gravy and for stuffing
several food preparations.
• Target Market: In addition to major cities, such as Karachi, Lahore and Islamabad,
there is an enormous export potential for Middle Eastern countries.
• Employment Generation: The proposed project will provide direct employment to
three individuals. Financial analysis shows the profitability of proposed business within
first year of its operation.
3
6. CRITICAL FACTOR
Mushroom production is planned under natural conditions. One important factor is
prevailing climatic condition (cold climate) in the area where the mushroom farm will be
established economically. The different mushroom that can be cultivated artificially have
different temperature requirement for mycelal growing and fruiting. To obtain the good
quality mushroom light, temperature, and humidity must be carefully controlled. Another
critical factor is the location of the mushroom farm, one should consider the distance
between the farm and the place where the substrate will be obtained, the greater the
distance the higher will be the cost of transporting and hence higher the cost of
production. Success of mushroom farming depends on the availability of markets.
Skilled workers are required for post harvest handling, drying and packing of the
mushroom prior to market.
7. POTENTIAL TARGET MARKETS
The marketing of mushroom follows the traditional distribution channel, through
middlemen or wholesalers at farm who identifies potential buyers and negotiate price, or
directly to retailers in urban markets. The time and cost spent in transportation, from farm
to the retail shop, varies from area to area. The key factors in marketing are availability of
current market information, quality of mushroom and supply & demand which will
determine the selling price. The overall production cycle for the mushroom farming
comprises of 5 months under natural condition. Where as an additional crop of 5 month
can be obtained under artificially controlled conditions. Fresh mushroom is marketed in
the super store of Karachi, Lahore and Islamabad. The surplus produce is dried and
canned which is marketed to hotels, restaurants and bakers. The potential targeted
markets for the mushroom are the cold areas especially northern hilly areas of Pakistan
like Kashmir Gilgit Swat Kaghan and Muree/ galiyat.
8. PRODUCTION PROCESS FLOW
The important channels of mushroom marketing in the area are:
(1) Mushroom grower Wholesaler/Commission agent → Retailer→ Consumer,
(2) Mushroom grower →Wholesaler/Commission agent → Consumer,
(3) Mushroom grower→ Retailer→ Consumer, and
(4) Mushroom grower→ Consumer.
Following production process is generally followed:
4
Mushroom production and processing
Spawn production
Compose preparation
Growing Mushroom
Packaging
Labeling
Transporting
Marketing
9. PROJECT COST AND BENEFIT SUMMARY
A detailed financial model has been developed to analyze the commercial viability of
mushroom Production and processing under the ‘Prime Minister’s Youth Business Loan’
program. Various cost and revenue related assumptions along with results of the analysis
are outlined in this section.
9.1 Project Economics
All the figures in this financial model have been calculated for mushroom production of
400 sq ft room with an annual production of 200 tins of mushroom per day.
The following table shows internal rate of return of mushroom.
Table 1. Project Economics
Description
Detail
Internal Rate of Return (IRR)
66%
Pay back period (years)
1.5
Net present value (NPV)
1,17568,76
Benefit Cost Ratio (BCR)
2.4
Returns on the scheme and its profitability are highly dependent on quality of mushroom,
suitable location, good farming practices and availability of trained staff. The project will
not be able to cover the potential demand of consumers and recover payments, if these
factors are not efficiently managed and will also lead to increased operating cost.
5
Similarly, good quality spawn and choosing best suitable location will yield more profit
in this business.
9.2 Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 2. Project financing
Description
Detail
Total equity (10%)
Rs. 195620
Bank loan (90%)
Rs. 1760850
Mark up to the borrowers (%/annum)
8%
Tenure of loan (year)
08
Grace period (year)
01
9.3 Project Cost
Following requirements have been identified for operations of the proposed business.
Table 3. Capital Investment for the Project
Capital investment
Amount(Rs.)
Racks
450000
Vehicale
50000
Mechienary and equipment
56100
Total capital cost
556100
Initial working capital
735500
Total project cost
1291600
9.4 Space Requirement
Basically mushroom production can be done vertically. A space of 3000 sq/ft area is
required for mushroom shed. Its production is done by making shelves in the room. The
shed space will be taken on the rental/lease basis. The rent is paid in advance for the one
year. The rent of the room varies area to area and location to location.
Table 4: Land Requirement
Area Required
Mushroom farm
Total Rent
Area(Sq.ft)
3000
Monthly Rent
Charges(Rs.)
2,500
Yearly Rent(Rs.)
30000
30000
9.5 Machinery and Equipment
Following table provides list of machinery and equipment required for production and
packaging of mushroom.
6
Table 5. List of Machinery and Equipment
Description
Quantity
Cost Rs /unit
1
1
1
1
1
2
-
6000
3000
400
1000
2000
3500
-
Spray pump
Humidity sensor
Temperature sensor
Electric paking gun
Tool kit
Weight machine
Total
9.6 Raw Material Requirements
Table 6: Cost of Raw Material
Description
Unit
Wheat straw
Poultry manure
Spawn
Gypsum
Urea
Polythin bag
Rubber band
Peet moss
Thermopol paking
Glint sheet
Sticker
Lime
Pesticide
Total (Rs)
Ton
Ton
Kg
Kg
Bags
Kg
Kg
Kg
No
No
Bags
Liter
Total
Rs
6000
3000
400
1000
2000
7000
19400
Quantity
Rate
Rs. Total
40
20
400
1200
2
200
3
10
3000
10
30000
15
10
-
7000
1800
600
8
1800
220
600
8000
2
500
0.5
300
1000
-
280000
36000
240000
9600
3600
44000
1800
80000
6000
5000
15000
4500
10000
735500
9.7 Revenue Generation
Total expected mushroom crop on 3000sqft farm would be 6 ton that is 6000kg
approximately. The marketing price of the mushroom is 400 Rs per Kg which is the
minimum rate. The total revenue of the expected crop would be 2400000 Rs on first year.
Table 7. Revenue of the Project
Expected Mushroom crop Expected crop
Year 1
6000 kg
price
400
Sale income
2400000
9.8 Human Resource Requirement
The table below provides details of human resource required to manage basic mushroom
farm. The staff salaries are estimated according to the market trends. However, these
requirements and pay scales may vary area to area.
7
Table 8. Human Resource Requirement
Description
No. of Employees
Labors
Sales man
Total
2
1
Salary/person/
month
10000
10000
Total salary per year
20,000
10,000
30,000
10. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
Dr. Sheikh Muhammad Iqbal
PATCO Manager
Ph: 051-8443211
E-mail. Iqbalsh65@hotmail.com
8
ANNEXURE 1
INCOME STATEMENT
Year
1
2
3
4
5
6
7
8
9
10
2,400,000
2,640,000
2,904,000
3,194,400
3,513,840
3,865,224
4,251,746
4,676,921
5,144,613
5,659,074
4,500
4,725
4,961
5,209
5,470
5,743
6,030
6,332
6,649
6,981
15,000
15,750
16,538
17,364
18,233
19,144
20,101
21,107
22,162
23,270
10,000
10,500
11,025
11,576
12,155
12,763
13,401
14,071
14,775
15,513
5,000
5,250
5,513
5,788
6,078
6,381
6,700
7,036
7,387
7,757
360,000
378,000
396,900
416,745
437,582
459,461
482,434
506,556
531,884
558,478
280,000
294,000
308,700
324,135
340,342
357,359
375,227
393,988
413,688
434,372
36,000
37,800
39,690
41,675
43,758
45,946
48,243
50,656
53,188
55,848
240,000
252,000
264,600
277,830
291,722
306,308
321,623
337,704
354,589
372,319
9,600
10,080
10,584
11,113
11,669
12,252
12,865
13,508
14,184
14,893
44,000
46,200
48,510
50,936
53,482
56,156
58,964
61,912
65,008
68,258
1,800
1,890
1,985
2,084
2,188
2,297
2,412
2,533
2,659
2,792
80,000
84,000
88,200
92,610
97,241
102,103
107,208
112,568
118,196
124,106
6,000
6,300
6,615
6,946
7,293
7,658
8,041
8,443
8,865
9,308
1,091,900
1,110,270
1,165,784
1,224,073
1,285,276
1,349,540
1,417,017
1,487,868
1,562,261
1,640,374
1,308,100
1,529,730
1,738,217
1,970,327
2,228,564
2,515,684
2,834,729
3,189,053
3,582,352
4,018,700
30,000
33,000
36,300
39,930
43,923
48,315
53,147
58,462
64,308
70,738
66,000
72,600
79,860
87,846
96,631
106,294
116,923
128,615
141,477
155,625
55,610
55,610
55,610
55,610
55,610
55,610
55,610
55,610
55,610
55,610
140,846
140,846
125,061
108,014
89,602
69,717
48,242
25,049
-
-
292,456
302,056
296,831
291,400
285,766
279,936
273,922
267,736
261,395
281,973
1,015,644
1,227,674
1,441,385
1,678,928
1,942,798
2,235,747
2,560,807
2,921,317
3,320,957
3,736,727
78,988
105,467
137,367
181,277
233,819
292,166
359,279
449,071
548,629
652,202
936,656
1,122,206
1,304,018
1,497,651
1,708,979
1,943,581
2,201,529
2,472,246
2,772,328
3,084,525
lime
Sticker
Pesticide
glint sheet
Labour
chaff wheat straw
poultry manure
spawn
Gypsum
polythin bags
rubber band
peet moss
fresh paking thrmopol
paking
Cost of Goods Sold
Gross Profit
Rent
Utilities
Depreciation
Interest on Loan
Sub - Total
Operating Income
Tax
Net Income
9
CASH FLOW STATEMENT
Year
0
Net Income
1
2
3
4
5
6
7
8
9
936,656
1,122,206
1,304,018
1,497,651
1,708,979
1,943,581
2,201,529
2,472,246
2,772,328
55,610
55,610
55,610
55,610
55,610
55,610
55,610
55,610
(80,905)
(88,996)
(97,895)
(107,685)
(118,453)
(130,298)
(143,328)
(157,661)
(173,427)
78,988
105,467
137,367
181,277
233,819
292,166
359,279
449,071
548,629
1,399,100
1,626,853
1,879,955
2,161,059
2,473,089
2,819,266
3,203,140
125,061
108,014
89,602
69,717
48,242
25,049
1,274,039
1,518,840
1,790,353
2,091,342
2,424,847
2,794,218
3,203,140
213,097
230,145
248,557
268,441
289,917
313,110
-
213,097
230,145
248,557
268,441
289,917
313,110
-
-
-
-
-
-
-
1,487,136
1,748,985
2,038,910
2,359,783
2,714,764
3,107,328
3,203,140
Depreciation
Net Inventory
(735,500)
Tax
Cash from Operations
Inflow / Outflow (A:G)
(735,500)
Interest on Loan
Net Cash from Operations
Inflow / Outflow (I - J)
Owners Equity
(735,500)
1,053,442
793,892
-
195,620
-
197,312
1,760,580
Cash from Financing
Inflow / Outflow (L+M)
Cash from Investment
1,956,200
racks for mushroom with 4 shelve
(450,000)
plastic pipe
(3,200)
drumwith cover
(5,000)
rent for building for farm
(30,000)
Net Cash from Investing Activities
140,846
140,846
Principal Amount
Long Term Loan
1,194,288
934,739
(488,200)
197,312
-
-
-
-
Net Cash
Inflow / Outflow (K+N+Q)
732,500
793,892
Opening Balance
-
732,500
1,526,392
2,777,146
4,264,282
6,013,267
8,052,177
10,411,960
13,126,724
16,234,052
Closing Balance
732,500
1,526,392
2,777,146
4,264,282
6,013,267
8,052,177
10,411,960
13,126,724
16,234,052
19,437,192
1,250,754
10
11. Key Assumption
Particulars
Assumption
Sales Price Growth Rate
5% per year
Increase in cost of raw material
10% per year
Increase in utilities
10% per year
Debt/Equity Ratio
90:10
Building
15%
Machinery
15%
Loan Period
8 years
Grace Period
1 year
Loan installments
Financial charges (interest rate)
Annually
8%
11